Opinion
No. 42209.
November 5, 1934.
Victor E. Cappa, of New York City (Louis O. Bergh, of New York City, on the brief), for plaintiffs.
John A. Rees, of Washington, D.C., and Frank J. Wideman, Asst. Atty. Gen., for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Suit by Hedwig Braun, individually and as executrix of the last will and testament of Herman W. Braun, deceased, and Theodore C. Weygandt, as executor of the last will of said decedent, against the United States.
Petition dismissed.
This case having been heard by the Court of Claims, the court, upon the evidence adduced, makes the following special findings of fact:
1. Plaintiffs, Hedwig Braun and Theodore C. Weygandt, are the duly appointed, qualified, and acting executors of the last will and testament of Herman W. Braun, deceased. At the time of his death on May 24, 1919, Herman W. Braun was a resident of the city of New York.
2. On November 18, 1920, a federal estate tax return was duly filed by plaintiffs reporting a net estate of $1,281,728.41. Plaintiffs paid the sum of $81,986.64 as a tax on the transfer of said estate, said tax being paid in two installments, viz.: $79,672.84 on November 18, 1920, and $2,313.80 on January 23, 1923. The tax was timely assessed and was paid under protest on the ground that the estate tax law was unconstitutional.
3. On November 10, 1925, plaintiffs filed claim for refund in the sum of $27,408 of the tax paid. The plaintiffs gave in said claim their reasons why the refund should be allowed as follows: "The amount of refund claimed, $27,408, represents that part of the gross estate tax (at 10%) which is based on the inclusion in the gross estate of insurance policies on the life of the decedent, payable to beneficiaries other than the decedent's estate, in the total amount of $314,080, less $40,000, which amount is exempt from tax. These policies were all taken out before February 24, 1919, the date of the passage of the estate tax act, under which this tax was collected, and the insurance policies in question should, therefore, have been excluded from the gross estate of the decedent. Lewellyn v. Frick, 268 U.S. 238, 45 S. Ct. 487, 69 L. Ed. 934, decided May 11, 1925."
4. The Estate Tax Division advised plaintiffs, in a letter dated May 3, 1926, that the administrative records of the Bureau of Internal Revenue were insufficient to enable the Bureau to pass upon the merits of the question presented by plaintiffs' claim for refund and requested certain specific data.
In a letter dated August 2, 1926, plaintiffs were notified that the requested information had not been furnished and were requested to submit the same on or before August 15, 1926.
Plaintiffs replied by letter dated August 5, 1926, explaining that some of the data was available but that the balance might not be on hand by August 15, and asked whether that which was available should be forwarded and an extension of time granted, if necessary, in which to submit the balance, and also inquired whether an extension could be granted so that all of the requested data might be assembled and forwarded at one time.
The Estate Tax Division replied by letter dated August 11, 1926, reading as follows:
"Reference is made to your letter of August 5, 1926.
"You are advised that if you are unable to file all the evidence previously requested in the above-named estate by August 15, the Bureau will suspend action if you so request. However, your claim for refund was filed November 10, 1925, and the refund, if any, will be limited to that portion of the tax, $2,313.80, paid January 23, 1923, within the four-year period next prior to the filing of the claim, as no portion of the sum paid on November 18, 1920, is refundable.
"It is suggested that you file whatever evidence you now have, with the understanding that if the Bureau's adjustment thereon does not involve the tax available for refund, you will be given further opportunity to submit additional evidence."
Plaintiffs replied by two separate letters, each dated August 13, 1926, forwarding documents containing the data originally requested as aforesaid.
5. The Commissioner of Internal Revenue addressed a letter to plaintiffs dated March 10, 1927, reading as follows:
"Reference is made to your claim for refund of $27,408, Federal estate tax paid under the Revenue Act of 1918.
"Your claim for refund is based on the contention that the value of certain insurance policies payable to beneficiaries other than the executors in excess of $40,000 should not be included in the taxable estate. It appears that fourteen policies were included in the return in the final audit in the sum of $274,080, being the excess over $40,000. Evidence filed by the estate shows that all of the policies above mentioned were taken out and the beneficiaries named therein before the passage of the Revenue Act of 1918, and no change in beneficiaries was made as to any of the policies since the effective date of the act.
"In view of the provisions of Treasury Decision 3945, the Bureau finds that no part of the value of the above-mentioned policies is subject to inclusion in the taxable estate. Accordingly, the following adjustment is made:
Gross estate =============================================================================================================== | | | Mortgages, notes, cash, and insurance | Returned | Determined | Adjusted | | | -----------------------------------------------------------|----------------|----------------|----------------- Insurance in excess of $40,000 payable to beneficiaries | | | other than the executors ............................... | $274,080.00 | $274,080.00 | $1,178,538.92 Gross estate ............................................. | 1,452,618.92 | 1,452,618.92 | 147,752.50 Deductions ............................................... | 170,890.51 | 147,752.50 | 1,030,786.42 Net estate ............................................... | 1,281,728.41 | 1,304,866.42 | 54,578.64 Total tax ................................................ | 79,672.84 | 81,986.64 | 27,408.00 Excess payment ........................................... | .............. | .............. | | | | --------------------------------------------------------------------------------------------------------------- "However, section 3228 of the U.S. Revised Statutes as amended by section 1112 of the Revenue Act of 1926 provides that all claims for the refunding of any internal revenue tax alleged to have been erroneously or illegally assessed or collected must be presented to the Commissioner of Internal Revenue within four years next after the payment of such tax."The following tax payments were made by you:
"November 18, 1920, $79,672.84.
"January 23, 1923, $2,313.80.
"Your claim for refund was filed November 10, 1925, and the amount refundable thereunder is limited to that portion of the tax paid within the above-mentioned four-year period.
"Accordingly, your claim for refund of $27,408 will be certified to the disbursing clerk of the Treasury Department for payment in the sum of $2,313.80, and is rejected as to $25,094.20.
"However, before your claim can be finally certified, it will be necessary for you to furnish, as evidence in support thereof, a shortform certificate of current attestation, from the court, showing your appointment as executors, and that such appointment remains in full force and effect. In the event that you have been discharged, there should be submitted in lieu of the above certificate, a statement of the court (a) certifying to the fact of discharge, and (b) setting forth the names of the persons to whom the refund should be made, as well as their addresses, and indicating what portion of the amount subject to refund each should receive.
"Upon receipt of the certificate herein requested, your claim will be given further appropriate consideration."
Plaintiffs replied by letter dated March 25, 1927, reading as follows:
"Pursuant to your letter of March 10, 1927, in the above matter, on behalf and under authority of Mrs. Hedwig Braun, executrix of the estate of Herman Braun, we send herewith a short form of certificate from the surrogates' court of New York County showing the appointment of executors of said estate, and that such appointment has not been revoked, and is in full force and effect.
"We understand that with this certificate you will be in a position to certify the payment of the claim for $2,313.80 by way of refund.
"It is, of course, understood that acceptance of said amount does not preclude or prejudice the right of the executors to contest the decision as to the rejection of the sum of $25,094.20 mentioned in your letter."
On April 9, 1927, the Commissioner of Internal Revenue signed a schedule of refunds, form 7809, allowing and certifying for payment a refund to plaintiffs of $2,313.80 with accrued interest thereon of $584.91, making a total sum of $2,898.71.
A completed form 7801, notice of adjustment of claim of refund, dated April 9, 1927, was mailed to plaintiffs reading as follows:
"Your claim for refund of Federal estate tax erroneously or illegally collected has been adjusted as shown below.
Claimed, $27,408.00; allowed, $2,313.80; rejected, $25,094.20.
Date of payment January 23, 1923: Total tax paid ..................... $81,986.64 Tax liability ...................... 79,672.84 Amount of refundment ............... 2,313.80 Interest allowed ................... 584.91 Total amount to be refunded ....... 2,898.71
"Adjusted in accordance with a letter addressed to you under date of March 10, 1927. Interest is allowed on the above refund from January 23, 1923, the actual date of payment, to April 9, 1927, the date of allowance.
"A check by the disbursing clerk of the Department for the amount refunded is forwarded herewith."
Soon thereafter a refund check, No. 58396, dated April 18, 1927, for the sum of $2,898.71 was sent to plaintiffs and by them indorsed and cashed on or before April 29, 1927.
6. There is no evidence tending to show any agreement, either express or implied, on the part of defendant to pay any other sum to plaintiffs than the amount which was refunded.
7. Plaintiffs' original petition was filed in the Court of Claims on January 17, 1933.
The plaintiff Hedwig Braun is an executrix of the last will and testament of Herman W. Braun and also sole residuary legatee and distributee under his will. The other plaintiff, Theodore C. Weygandt, is also an executor under the will. They join in bringing suit to recover $25,094.20 with interest which they claim has been illegally collected and held by defendant as taxes upon the proceeds of certain insurance policies on the life of the decedent who died May 24, 1919.
The issues joined in the case are quite simple and there is no dispute over the facts. The taxes in question were assessed and collected before the decision of the Supreme Court in the case of Lewellyn v. Frick, 268 U.S. 238, 45 S. Ct. 487, 69 L. Ed. 934, in which it was held that the act of 1919 did not make the estate tax retroactive and did not apply to insurance policies taken out before the effective date thereof. The Commissioner in assessing the tax construed the law otherwise and included in the taxable property of the estate the proceeds of the insurance policies which had been taken out by the deceased prior to the date when the act went into effect. A claim for refund was filed on November 10, 1925, within four years of the payment of the second installment of the tax but more than four years after the payment of the first installment. After the Frick Case had been decided the Commissioner reached a final conclusion on the claim and on March 10, 1927, wrote a letter to the plaintiffs, a copy of which is set out in Finding 5. This letter stated with reference to the insurance policies in question that "the Bureau finds that no part of the value of the above-mentioned policies is subject to inclusion in the taxable estate." But it also stated that section 3228 of the Revised Statutes (26 USCA § 157 and note) made it necessary that a claim for refund "must * * * be presented to the Commissioner of Internal Revenue within four years next after the payment of such tax," and that therefore the only amount refundable was the "portion of the tax paid within the above-mentioned four-year period." This was followed by the statement: "Accordingly, your claim for refund of $27,408 will be certified to the disbursing clerk of the Treasury Department for payment in the sum of $2,313.80, and is rejected as to $25,094.20."
After some further proceedings not material to the decision of the case, the Commissioner signed a schedule of refunds allowing and certifying for payment a refund to plaintiffs of $2,313.80 with accrued interest thereon of $584.91, making a total sum of $2,898.71, a check for which was mailed to plaintiffs and cashed by them.
Counsel for plaintiffs contend that the reasons given by the Commissioner for rejecting the claim were erroneous and counsel for defendant on the other hand insist that they were correct. We have already ruled on this point in favor of the plaintiffs' contention in the case of Hills v. United States, 50 F.2d 302, 55 F.2d 1001, 73 Ct. Cl. 128, and held that the statutory period of limitations prescribed by sections 3226 and 3228 (see 26 USCA §§ 156 note, 157 and note) with respect to any portion of the estate transfer tax begins to run from the date when all the tax is paid, although the statute provides differently with reference to income and excess profits taxes. The reasons for this decision were set out at some length in the opinion. After the question has been reargued, we see no reason for changing our decision in the Hills Case, supra, and therefore conclude that at the time when the Commissioner made his decision on the claim it was erroneously rejected. When, however, we consider the subsequent events in the case, as hereinafter set forth, it will be found that this conclusion is of no avail to the plaintiffs and that regardless of how the question involved therein is decided the plaintiffs are not entitled to recover herein.
As we view the case, the principal defense is found in the contention made on behalf of the defendant that the suit was not begun within the time provided by section 3226 of the Revised Statutes.
The last payment on the estate tax was made January 23, 1923, and, as stated above, we have held that this is the date of "the payment of the tax" under the section applying to estate taxes. The claim was rejected March 10, 1927, but the suit was not begun until January 17, 1933. As section 3226 of the Revised Statutes (see 26 USCA § 156 and note) provides that no suit shall be begun on any claim for refund after the expiration of five years from the date of the payment of the tax unless such suit is begun within five years after the disallowance of the claim, it is manifest that plaintiffs' claim is barred by the statute of limitations unless some reason can be given why the provisions of section 3226 do not apply.
It is urged on behalf of plaintiffs that the letter of the Commissioner rejecting the claim showed there had been an excess payment of $27,408, that this amounted to an account stated in favor of plaintiffs for that amount, and that the other statements contained in the letter to the effect that only a certain portion of the claim would be allowed and the remainder would be rejected were a mere nullity and counted for nothing for the reason that the statute required that when there had been an overpayment of taxes they should be refunded.
We think if this argument should be sustained the purposes of sections 3226 and 3228 prescribing limitations on the recovery of taxes erroneously collected would to a large extent be rendered unavailing to the government. Whenever taxes are erroneously collected and retained after a proper claim for refund has been filed it does not necessarily follow that they may be recovered. The statutes prescribe certain limitations upon the right of recovery. Among other things, a claim for refund must be filed within a prescribed time and when the claim is not paid suit must be brought thereon within the period of limitation fixed by the statute. These provisions of the law are not nullified by other provisions authorizing the Commissioner to refund taxes wrongfully collected. Plaintiffs did not bring this suit until more than five years after the last payment made on the taxes and more than two years after the rejection of that part of the claim for which suit is now brought. The action is therefore barred by the statute of limitations.
In contending to the contrary, it is argued by plaintiffs, first, that the law required the Commissioner to refund taxes which he admitted had been wrongfully collected, and, second, that the statements contained in the letter rejecting the claim in part but admitting the wrongful collection of the taxes for which suit is brought constituted an account stated in favor of the plaintiffs and that plaintiffs therefore had six years from the time the letter was sent out in which to bring suit.
Section 1111 of the Revenue Act of 1926 ( 26 USCA § 149 and note) authorizes the Commissioner to refund taxes erroneously or illegally assessed and collected. The plaintiffs contend that this provision is mandatory. There may be some decisions that have construed the word "authorized" in connection with the context so as to give it a mandatory meaning, but it appears clear to us that when this section is considered in connection with the other statutes with reference to refunds such a construction is quite erroneous and would break down the greater part of the system established by law with reference to making refunds. There are numerous instances in which overpayments are not refundable. In fact, the statute expressly directs in some instances that they should be applied on other taxes. When the Commissioner found there was an overpayment it was next his duty to determine whether the overpayment should be refunded, but the fact that he came to an erroneous conclusion on this matter did not extend the statute of limitations.
The construction which we have placed upon the law is not a harsh one. The Commissioner precisely and definitely rejected the claim which plaintiffs are now making. The law gave the plaintiffs two years thereafter in which to bring suit. Instead of so doing, the plaintiffs delayed for a period of nearly six years and now bring this suit contending, among other things, that the fact that the Commissioner found an overpayment constituted an account stated.
We have recently in many cases recited the elements of an account stated. Among them is the rule that "the parties must agree upon the balance struck and there must be a promise, express or implied, for the payment of the balance." Leisenring v. United States, 4 F. Supp. 993, 994, 78 Ct. Cl. 171. See, also, Samuel Daube v. United States, 5 F. Supp. 769, 78 Ct. Cl. 754. The letter of the Commissioner upon which plaintiffs rely utterly fails to comply with the requisites of such an account and we do not need to go into any extended discussion of the matter. We would note, however, that the letter, instead of admitting that anything was due the plaintiffs beyond the amount it was proposed to refund and which was subsequently refunded, positively informed plaintiffs that nothing more would be paid and in effect denied the validity of the claim that plaintiffs now make. There was, however, an implied promise to pay the amount which the letter said to be due plaintiffs, which amount plaintiffs duly received. Plaintiffs practically agreed to the statement by accepting the payment made and retaining it for years without any objection thereto. Consequently we might go even further if it were necessary and say on the authority of Stearns Co. v. United States, 291 U.S. 54, 54 S. Ct. 325, 78 L. Ed. 647, that the account between the parties was settled.
The case is altogether different from that of the Shipley Construction Co. v. United States, 7 F. Supp. 492, decided by this court June 25, 1934, where the Commissioner not only allowed the claim but in effect promised to pay it, thus luring the plaintiff to delay further proceedings for its collection. In the case at bar the plaintiffs simply slept on their rights and could not have been misled in any way. The Commissioner, it is true, erred, but the law gave the plaintiffs ample remedy of which they did not see fit to avail themselves.
It follows that plaintiffs' petition must be dismissed and it is so ordered.